Tonight's topic is Liberal Separatism, Lite. It is shown on Exhibit 11 as a rather small piece of the pie, located between the Liberal Integrationists in the upper left quadrant and the Liberal Separatist Heavies with which it shares its own quadrant on the left below.

EXHIBIT 11

LIBERAL SEPARATISM: HEAVY AND LITE

Exhibit 14, reproduced on the following page, provides a blow-up of a portion of that small piece of pie.

Tonight we will discuss two works, Stiglitz' book, Globalization and Its Discontents and Oxfam's Report, Rigged Rules and Double Standards.

We visited with Amartya Sen last week, as he expressed his view that globalization's critics ought to focus on equity issues, rather than arguing that the poor people of the world are worse off because of international trade. I quoted from Dani Rodrik in my Sunday Forum presentation on September 22. Rodrik said that while he had sympathy for the some of the positions expressed in William Greider's One World Ready of Not, Greider's economic arguments were fundamentally wrong. I will return to Rodrik's writings next week, since he is also a critic of an economic theory often relied upon by integrationists, the theory of comparative advantage.

EXHIBIT 14

LIBERAL SEPARATISM, LITE AND ITS BORDERS

Last week we discussed Liberal Separatism, Heavy as exemplified by David Korten's When Corporations Rule the World. Liberal Separatist “Heavies” are fundamentally opposed to the phenomenon of economic globalization as we know it today. In part, Korten's opposition was stated positively in terms of requirements for “creating a bias toward the local.” But his “bias toward the local” rejects the way international trade and investment is presently carried on by corporations and overseen by international and governmental institutions.

Kortenwould close down the World Bank, along with regional development banks such as the InterAmerican Development Bank, the African Development Bank, and the Asian Development Bank. He would transfer duties of the IMF and the World Trade Organization to the United Nations. Under his plan, a system of global and regional institutions would enhance the efforts of localities to set their own rules of economic engagement, giving preference to local producers to meet local needs, and resisting what he calls the external “colonization” of their markets and resources.

Korten envisions that many localities may issue their own local currency to facilitate local transactions and limit the flow of money out of the community. The food system would be designed to recycle human wastes - - depending primarily on solar-generated energy sources - - including animal power and biogas. In Northern climates, we would eat winter or preserved vegetables and put apples rather than bananas on our cereal. People in forested areas would build their houses of wood, and those in hot, dry climates would build houses of earthen materials. So Korten's “ bias toward the local” really does mean a different kind of a world.

I suggested last week that what clearly marks the border between Liberal Separatism, Heavy and Liberal Separatism, Lite is their respective assessments concerning desirability of external trade. The Heavies prefer to minimize external trade in favor of goods of national or local origin. The Lites view external trade as a potential boon to disadvantaged nations and their needy populations, but believe that the least developed countries should be permitted to maintain their own barriers to exports.

The Heavies are inclined to reject economic growth as a strategy for poverty eradication, citing environmental concerns and cultural values as key considerations, and seeing localization as a preferable alternative.

The Lites see serious flaws in the current international economic regime, but believe lowering some kinds of barriers to trade can help to lift large numbers of people out of poverty in the developing world. They generally see the protest movement as helpful, perhaps because they have lacked political support in the past and welcome a vocal constituency whose presence makes it more likely that they can achieve the changes in trade and financial policies that the Lites favor.

The most important difference between the Liberal Separatists Lite and the Liberal Integrationists is that the Integrationists are much more likely to regard reduction of trade barriers by the developing countries themselves as beneficial.

Integrationists and the Lites can disagree sharply over the meaning of the “Southeast Asian Miracle,” the exporting and economic development successes of the Asian Tigers: Korea, Taiwan, Singapore, Malaysia, Thailand. The Lites say these countries grew because they maintained protective barriers in their early stages of development. The Integrationists say that these countries' economies grew because they set out to be good at exporting, and that because they protected some domestic industries, these industries remained weak and inefficient.

Lites say that the financial melt-down in Southeast Asia in the 1990's is evidence of fundamental flaws in IMF ideology and practice which have not yet been cured. Integrationists say the crisis was primarily attributable to poor governance, crony capitalism, and lack of transparency - - that the IMF has learned from the mistakes it made in handling that crisis, and is making corrections.

I place Joseph Stiglitz, the author of Globalization and Its Discontents, in the category, Liberal Separatist, Lite. Stiglitz thinks globalization is on the wrong track and heading us toward big trouble. He believes that we could do much better than we are doing. And he is sore as hell about the conduct of international economic policy. But he does NOT argue that, thus far at least, globalization has hurt more people than it has helped.

Says Stiglitz,

Today, globalization is being challenged around the world. There is discontent with globalization and rightfully so. Globalization can be a force for good: the globalization of ideas about democracy and civil society have changed the way people think, while global political movements have led to debt relief and the treaty on land mines. Globalization has helped hundreds of millions of people attain higher standards of living, beyond that what they, or most economists, thought imaginable but a short while ago . . .

But for millions of people, globalization has not worked. Many have actually been made worse off, as they have seen their jobs destroyed and their lives become more insecure. They have seen their democracies undermined, their cultures eroded.

If globalization continues to be conducted in the way that it has been in the past, if we continue to fail to learn from our mistakes, globalization will not only not succeed in promoting development but will continue to create poverty and instability. Without reform, the backlash that has already started will mount and discontent with globalization will grow.

Stiglitz won the Nobel Prize for his work in information economics, particularly on asymmetries of information. He was concerned with what goes wrong with markets when a few people in the know have much better information than the rest of us. Stiglitz' work helped to explain why markets don't work perfectly and why government intervention is required in some circumstances.

Stiglitz left academia in 1993 to become Chairman of Bill Clinton's Council of Economic Advisors. He moved to the World Bank in 1997, just in time for the financial meltdown in Southeast Asia. After serving as chief economist and senior vice president at the World Bank for almost three years, he left in January, 2000.

Like Amartya Sen, whose views we visited last week, Stiglitz' assessment of the World Bank under James Wolfensohn's leadership is on the positive side. When he turns to the International Monetary Fund, however, his appraisal is scathing. I will discuss Stiglitz' views further in a few minutes. But first I would like to qualify Dr. Stiglitz as a card-carrying member of the Liberal Separatist, Lite (LSL) club, on the basis of three key beliefs.

Belief #1:International trade represents an important tool for improving the circumstances of the poor in developing countries.

Stiglitz (at page 4-5, 22) says that:

Opening up international trade has helped many countries grow far more quickly than they would otherwise have done. International trade helps economic development when a country's exports drive its economic growth. Export-led growth was the centerpiece of the industrial policy that enriched much of Asia and left millions of people there far better off. Because of globalization many people in the world now live longer than before and their standard of living is far better. People in the West may regard low-paying jobs at Nike as exploitation, but for many people in the developing world working in a factory is a far better option than staying down on the farm and growing rice.

But, he goes on to say that:

A growing divide between the haves and the have-nots has left increasing numbers in the Third World in poverty, living on less than a dollar a day. Despite repeated promises of poverty reduction made over the last decade of the twentieth century, the number of people living in poverty living in poverty has actually increased by almost 100 million . . .

And then he concludes:

Globalization can be reshaped, and when it is, when it is properly, fairly run, with all countries having a voice in policies affecting them, there is a possibility that it will help create a new global economy in which growth is not only more sustainable and less volatile but the fruits of this growth are more equitably shared.

Belief #2:Economic growth can be good.

Stiglitz (at page 82) says:

The existence of a correlation between growth and poverty reduction should come as no surprise . . . The issue is not whether one is for or against growth. In some ways, the growth/poverty debate is pointless. After all, almost everyone believes in growth.

Belief #3: Existing international institutions can be reformed.

Stiglitz believes that the World Bank has made mistakes in the past and that the IMF has done very badly indeed, but he says (at page 215):

I believe that globalization can be reshaped to realize its potential for good and I believe that international economic institutions can be reshaped in ways to insure that this can be accomplished.

What a difference there is between Joseph Stiglitz and David Korten!

Korten agrees with none of these three beliefs that underpin the Liberal Separatist Lite position. Korten does not believe in economic growth. He does not believe in the beneficial potential of international trade, and - - most of all - - he does not believe in trying to improve the policies and performance of the Bretton Woods institutions, the World Bank, IMF, and the World Trade Organization.

Stiglitz wants to stick with the IMF. Indeed, he says we would have to reinvent it, if we closed it down. Nevertheless, he strongly suspects that despite some superficial adjustment to outside criticism, the IMF still holds arthritic Thatcher-like and Reagan-like beliefs deep in its heart.

The original role of the World Bank was lending for development projects. The IMF was given the more difficult task of ensuring economic stability, preventing another worldwide depression. These roles changed, however. Stiglitz says:

In the 1980's, the Bank went beyond just lending for projects (like roads and dams) to providing broad-based support, in the form of structural adjustment loans; but it did this only when the IMF gave its approval - - and with that approval came IMF-imposed conditions on the country. The IMF was supposed to focus on crises; but developing countries were always in need of help, so the IMF became a permanent part of life in most of the developing world . . .

More recently, as the crises have gotten bigger, and the deep coffers of the IMF seemed insufficient, the World Bank was called in to provide tens of billion of dollars of emergency support, but strictly as a junior partner, with the guidelines of the programs dictated by the IMF. . . . The IMF was supposed to limit itself to matters of macroeconomics in dealing with a country, to the government's budget deficit, its monetary policy, its inflation, its trade deficit, its borrowing from abroad; and the World Bank was supposed to be in charge of structural issues - - what the country's government spent money on, the country's financial institutions, its labor markets, its trade policies. But the IMF took a rather imperialistic view of the matter . . . it viewed almost everything as falling within its domain. It often got impatient with the World Bank, where even in the years where free market ideology reigned supreme there were frequent controversies about what policies would best suit the conditions of the country. The IMF had the answers (basically, the same ones for every country)., didn't see the need for all this discussion, and, while the World Bank debated what should be done, saw itself stepping in to provide the answers.

The two institutions could have provided countries with alternative perspectives on some of the challenges of development and transition, and so doing they might have strengthened democratic processes. But they were both driven by the collective will of the G-7, and especially their finance ministers and treasury secretaries, and too often, the last thing they wanted was a lively democratic debate about alternative strategies.

So the result was to impose conditions on the developing countries that were inhumane, in Stiglitz's view. He believes that the IMF's actions have been guided by narrow institutional concerns, ideological rigidity, and insensitivity to the impact of its imposed measures on vulnerable populations in developing countries. He says:

But while no one was happy about the suffering that often accompanied the IMF programs, inside the IMF it was simply assumed that whatever suffering occurred was a necessary part of the pain countries had to experience on the way to becoming a successful market economy, and that their measures would, in fact, reduce the pain the countries would have to face in the long run.

Stiglitz then concludes:

Undoubtedly, some pain was necessary; but in my judgment, the level of pain in developing countries created in the process of globalization and development as it has been guided by the IMF has been far greater than necessary.

Dr. Stiglitz devotes considerable attention to his policy disagreements with Robert Rubin, (Bill Clinton's first Treasury Secretary), Larry Summers (who succeeded Rubin) and Stanley Fischer, the number-two man at the IMF. Relationships between Stiglitz, Summers, and Fischer - - all of whom were former academics of considerable stature - - seem to have been and perhaps remain to this day very prickly indeed.

During the 1990's the United States and the IMF faced acute financial difficulties in Asia, Latin America, and in the former Societ Union. Early in the Clinton Adminstration, Stiglitz opposed international financial liberalization measures that were favored by the U.S. Treasury and the IMF. Stiglitz lost his bureaucratic battles on these issues and some very serious financial crises ensued.

What I think Joseph Stiglitz is saying in Globalization and Its Discontents, is essentially, “ I told you so. If Larry Summers and Robert Rubin and Stanley Fischer had paid attention to me, this never would have happened, and people throughout the world would be far better off than they are today. The basic policy of opening up the developing world to U.S. financial services was wrong. It enabled the crisis.”

Stiglitz is saying is that the U.S. Government, the Bank, and IMF should have paid much more attention to Joseph Stiglitz - - and to John Maynard Keynes. And they should have paid much less attention to to the views of Milton Freidman and Margaret Thatcher. Stiglitz would permit more government intervention and self-determination on the part of developing countries - - he would give them the right to intervene to slow down capital flows. And he would give greater attention to impacts on the poor in these countries.

Stiglitz is saying that if the vast sums that have been expended on bailing out banks and foreign investors in order to persuade them to keep their funds in place in developing countries had been spent instead on providing social services for the poor in these countries, both the poor and the world would be far better off.

Well, there is much more that can be said about Joseph Stiglitz and his views of the IMF. Stiglitz thinks IMF's handling of crises has been simply horrible. As we shall see when we discuss Tom Friedman's Lexus and the Olive Tree, Freidman, though a Liberal Safetynetter, basically agrees with the IMF policy. Freidman buys the IMF argument that crony capitalism was what went wrong in Asia, that very poor banking practices are the hallmark of crony capitalism, and that Asia's financial system benefits immensely from outside competition. Paul Blustein, the Washington Post financial reporter who wrote The Chastening: Inside the Crisis That Rocked the Global Financial System and Humbled the IMF -- apparently a reasonably objective observer -- appears to come out somewhere between Freidman and Stiglitz.

My advice to you tonight -- it should be familiar to you by now -- is not to read Stiglitz by himself. Always get contrasting views. Best to read all three books together.

- - - -

Now on to Oxfam and to Rigged Rules and Double Standards. This 273-page report is not merely an analytical document. It derives much of its persuasive effect from the repeated use of anecdotes and its transmission of the voices of people in developing countries who are affected by trade. Let's listen to some of those voices.

Nawaz Nazari, a sewing machine operator in an Export Processing Zone in Bangladesh:

In my village we were very poor. I came here to find a better life. Today I have more money. My job here means that I can give my children an education, and we are not hungry. They will have a chance for a better future. But work in the factory is hard. We are not well treated. And if we become sick, there is no protection. Do people in your country think about our condition when they buy the shirts we make?

Tatu Museyni, a coffee farmer in Tanzania:

The price of coffee is destroying this community. When the price was better a few years ago, I could afford to send my children to school, and to feed them well. Now I can't afford to buy them enough food. How can I afford to send them to school, when I cannot even feed them well? The price of coffee is destroying us.

Josephine Laranja, employed in an electronics factory in Manila:

Of course I am fearful of losing my job. Some factories have already closed. Now we are told that the American computer market is failing. They say that means there will be less production here. Without this job, my life will be very hard. My parents and children depend on me, so it will be hard on them.

And Lam Van, a rice farmer in the Mekong Delta:

If you ask me how our lives compare with our parents' lives, I will tell you that everything has changed. Things are better. We have opportunities that they never had. Life is hard. We are vulnerable. But there is less poverty today.

These are some of voices that Oxfam has heard as it carries out its projects in developing countries. Oxfam's own concerns are mainly with international trade, the World Trade Organization, and the welfare of the poor in developing countries.

Here is how Oxfam qualifies as a member of the Liberal Separatist, Lite (LSL) Club in terms of the three basic beliefs that set it apart from the Liberal Separatist Heavies.

Belief #1:International trade represents an important tool for improving the circumstances of the poor in developing countries.

. . . “globaphobia [a terminally pessimistic view of international trade] is refuted by the evidence of history. In East Asia, trade contributed to a dynamic process of economic growth that from the mid-1970's to the mid-1990's lifted more than 300 million people out of poverty. In other developing countries, participation in trade has given people opportunities that would otherwise be denied to them. Whatever problems may be associated with the expansion of exports, their contraction would destroy the livelihoods of millions of women workers and small farmers.

Belief #2:Economic growth can be good.

Oxfam says [on page 31]:

Exports can improve income and welfare of poor communities by contributing to overall economic growth. However, that pattern of growth also matters. Exports are most effective in reducing poverty when they create demand in markets in which poor people have an important stake, such as labor-intensive manufacturing and agriculture.

Belief #3: Existing international institutions can be reformed.

Oxfam says [on page 257]:

Making trade work for the poor implies a broad agenda for reform, extending from national governments up to the World Trade Organization. That agenda overlaps with wider strategies for poverty reduction. Reform of the WTO should address the democratic deficit at the same time promoting policies designed to meet the needs of the poorest countries.

A particularly interesting feature of Rigged Rules and Double Standards is its discussion of WTO governance, which it calls “formal democracy and informal dictatorship (p. 251).” Unlike the World Bank and the IMF, which operate on the basis of “one dollar one vote, each country has a single vote in the WTO. Despite this formal governance structure, however, the industrial countries and the multinational corporations use technical expertise, economic power, and lobbying influence to run the show. The vast majority of developing countries, says Oxfam, opposed extension of WTO's authority into areas such as intellectual property rights, investment, and commercial services, yet their opposition was ignored or suppressed by threat of trade sanctions. Oxfam argues for increased technical assistance to developing countries in the international trade field, greater transparency in trade negotiations, and the development of a Global Antitrust mechanism.

- - - -

So, once again we have the set of beliefs that separates Oxfam from David Korten and from the Liberal Separatist Heavies. However, unlike Stiglitz, Oxfam makes is explicit in separating itself from both the heavies (whom it calls “globaphobes”) and from the integrationists (whom it calls “globaphiles.”)

Oxfam regards these counterpoised groups as “two great fundamentalist camps” (p. 22). Early in its report, Oxfam makes a statement that I believe is of considerable relevance to the Social Witness process that the UUA is undertaking this year. It says (at p. 22):

The endless arguments over whether globalization is inherently good or bad for poor people are not helpful terms on which to conduct dialogue about an issue of such profound importance.

It also draws a very interesting distinction between “globaphobia” and the “mainstream” anti-globalization movement (p. 23).

That [mainstream] movement has sought to focus debate on the policies and institutions that deny poor countries an opportunity to participate in world trade on reasonable terms. It represents a challenge to the existing trading system and the rules that govern it, but not a rejection of trade per se.

Now some of you may have noticed an inconsistency between Exhibit 14, which I introduced at the beginning of this class and Exhibit 8, which I introduced in our first class. Exhibit 8 showed Oxfam sitting on the fence between Liberal Integration and Liberal Separatism, with its “mug” on one side of the line and its “wump” on the other. And, from the picture I drew with a shaky hand on Exhibit 8, it is reasonably clear that Oxfam's “wump” in the separatist camp is bigger than its “mug” looking in the direction of the integrationists. By contrast, in Exhibit 14, I show Oxfam in its very own slice of pie called “Liberal Separatist, Lite.” Why the change? I originally put Oxfam on the fence because it favors removal of barriers to the imports of the developing countries presently maintained by industrialized countries. That is to say, Oxfam argues for a limited kind of free international trade, free trade one-way.

I have changed Oxfam's location on the quadrant chart because I have concluded that, in Rigged Rules and Double Standards, this respected and venerable NGO (1) has defined its own position as one of challenging the existing trading system in distinctive if relatively moderate terms (2) appears ready to lead the anti-globalization movement in its relatively moderate direction.

In reading Rigged Rules and Double Standards one can get the impression that Oxfam's views represent a kind of anti-globalization center of gravity and globaphobes are a small but vocal minority at the fringe group in that movement. Maybe so in the future, but I doubt that is the case today. I think that globaphobes like David Korten exert a heavy influence. That is why his When Corporations Rule the World was the book of choice recommended by our Study/Action Issues Resource Guide and why so much of the material in that Guide leans toward Liberal Separatist, Heavy.

Today the anti-globalization movement represents a fusion of labor union, farmer, and other groups that must look out for domestic industries, farms, and jobs with environmentalists and others who are primarily concerned with improving conditions in developing countries. Such an alliance cannot be entirely homogeneous in its objectives. There are organizations and persons in the alliance whose mandates requires them to defend their constituencies' interests against imports.

Oxfam wants tariff barriers to imports from developing countries to be eliminated. It wants to remove quantitative limitations on textile imports. It favors an end of subsidies on our agricultural exports along with an opening of our markets to agricultural imports from developing countries. At the same time it seeks these changes in industrial countries, it wishes to permit the developing countries to protect their own industries, jobs, and farms.

As Oxfam seeks these results - - and particularly if it starts to show success in achieving its aims on the elements of its program that run contrary to the domestic interests within the industrialized world - - it is reasonable to expect that the fundamental tensions within the anti-globalization movement will exhibit themselves.

Oxfam favors the creation of an international commodities institution to stabilize world commodity markets - a kind of grand international marketing board, drawing on ideas originally put forward by John Maynard Keynes. This idea may cause a bit intellectual and interest group dissent within the movement's umbrella.

On the other hand, the humanitarian dimensions of Oxfam's program probably will command very wide support among the present members of the movement. These humanitarian dimensions include debt reduction for the least developed countries, changes in provisions with respect to intellectual property rights and patent rights affecting these countries, and issues of food safety.

Unitarian Universalist Ray Offenheiser who is Director of Oxfam America, is quoted in an interview in the June 2002 issue of The Call published by the Unitarian Universalists for a Just Economic Community (UUJEC) as saying that although the media seemed to report the protests as actions of fringe groups, that belies reality:

There is a wide movement of citizen action, with 70-80% agreement on a joint agenda, of which Oxfam is a part . . . What is unique and exciting is that organizations as diverse as the AFL-CIO, the Sierra Club, Amnesty International, the Institute for Agricultural and Trade Policy, as well as parallel groups from the Global South, are also putting global trade at the top of their agenda.

Maybe so, but the 20% to 30% on which there is not agreement may prove to be very fundamental.

And now I would like to conclude this presentation by telling you about my shower this morning. Before I stepped in, I reached over to the knob on the left and turned on the hot water, but I didn't get into the shower stall. When water started to run hot, I leaned over again and gave the cold-knob on the right a quick twist. Then I got in and adjusted both knobs until the temperature felt fine.

Faced with a massive breakdown of the international economic system in the 1930's John Maynard Keynes prescribed a program of government intervention in response to market failure. Governments heeded his advice and they twisted the knob on the left. As evidence of the shortcomings of government intervention emerged, Milton Freidman prescribed a return to reliance on markets. Governments heeded his advice. They leaned in and gave the knob on the right a great big twist. Faced with the consequences of that great big twist, it seems to me that Joseph Stiglitz and Oxfam are now trying to get into the shower to change the temperature to a more suitable level.

And, whether they succeed or not, it certainly does appear that the spirit of John Maynard Keynes has revived, and is walking the earth today.

HOMEWORK FOR NEXT WEEK

Remarks by Alan Greenspan at the Institute for International Economics of the Peter G. Peterson Building, Washington, DC, October 24, 2001